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Mixed Groups (1120/L/PC), later. Amixed group must also file Form 8916,Reconciliation of Schedule M-3 TaxableIncome with Tax Return TaxableIncome for Mixed Groups, and, ifapplicable, Form 8916-A, SupplementalAttachment to Schedule M-3.If the parent company of a U.S.consolidated tax group files Form 1120and any member of the group files Form1120-PC or Form 1120-L and theconsolidated Schedule L reported in thereturn includes the assets of all of thecompanies (the insurance companiesas well as the non-insurancecompanies), in order to determine if thegroup meets the 10 million thresholdtest for the requirement to fileSchedule M-3, use the amount of totalassets reported on Schedule L of theconsolidated return. If the parentcompany of a U.S. consolidated taxgroup files Form 1120 and any memberof the group files Form 1120-PC orForm 1120-L and the consolidatedSchedule L reported in the return doesnot include the assets of one or more ofthe insurance companies in the U.S.consolidated tax group, in order todetermine if the group meets the 10million threshold test, use the sum of theamount of total assets reported on theconsolidated Schedule L plus theamounts of all assets reported on Forms1120-PC and 1120-L that are includedin the consolidated return but notincluded on the consolidatedSchedule L.Other entities. There are uniqueseparate Schedule M-3s for taxpayersrequired to file Form 1065, U.S. Returnof Partnership Income; Form 1120-S,U.S. Income Tax Return for an SCorporation; Form 1120-F, U.S. IncomeTax Return of a Foreign Corporation;and for Forms 1120-PC or 1120-L. Formore information, see the instructionsfor the applicable Schedule M-3.For insurance companies included inthe consolidated U.S. income tax return,see the instructions for Part I, lines 10and 11, and Part II, line 7, for guidanceon Schedule M-3 reporting ofintercompany dividends and statutoryaccounting adjustments.No Schedule M-3 is required fortaxpayers filing Form 1120-REIT, U.S.Income Tax Return for Real EstateInvestment Trusts; Form 1120-RIC, U.S.Income Tax Return for RegulatedInvestment Companies; Form 1120-H,U.S. Income Tax Return forHomeowners Associations; and Form1120-SF, U.S. Income Tax Return forSettlement Funds.Completing Schedule M-3same supporting detailed information bepresented for Part II and Part III of theconsolidated Schedule M-3.A corporation (or any member of a U.S.consolidated tax group) that is requiredto file Schedule M-3 and has at least 50 million total assets at the end of thetax year must complete the schedule inits entirety. In particular, a corporationfiling a nonconsolidated return that hasat least 50 million total assets at theend of the tax year must complete PartsI, II, and III. Such a corporation does notcheck any of the checkboxes at the topof Parts II and III. In the case of a U.S.consolidated tax group, Part I must becompleted once, on the consolidatedSchedule M-3, by the parentcorporation. Parts II and III must becompleted by the parent corporation,each includible corporation, and aconsolidating eliminations entity.For any part of Schedule M-3 (Form1120) that is completed, all applicablequestions must be answered on Part I,all columns must be completed on PartsII and III, and all numerical data requiredby Schedule M-3 must be provided. Anystatement required to support a line itemon Schedule M-3 must be attached atthe time Schedule M-3 is filed and mustprovide the information required for thatline item.Example 1.1. U.S. corporation A owns U.S.subsidiary B and foreign subsidiary F.For its current tax year, A preparesconsolidated financial statements with Band F that report total assets of 12million. A files a consolidated U.S.income tax return with B and reportstotal consolidated assets on Schedule Lof 8 million. A's U.S. consolidated taxgroup is not required to fileSchedule M-3 for the current tax year.2. U.S. corporation C owns U.S.subsidiary D. For its current tax year, Cprepares consolidated financialstatements with D, but C and D fileseparate U.S. income tax returns. Theconsolidated accrual basis financialstatements for C and D report totalassets at the end of the tax year of 12million after intercompany eliminations.C reports separate company totalyear-end assets on its Schedule L of 7million. D reports separate companytotal year-end assets on its Schedule Lof 6 million. Neither C nor D is requiredto file Schedule M-3 for the current taxyear.3. Foreign corporation A owns100% of both U.S. corporation B andU.S. corporation C. C owns 100% ofU.S. corporation D. For its current taxyear, A prepares a consolidatedworldwide financial statement for theABCD consolidated group. The ABCDconsolidated financial statement reportstotal year-end assets of 65 million. A isnot required to file a U.S. income taxreturn. B files a separate U.S. incometax return and reports separatecompany total year-end assets on itsSchedule L of 52 million. C files aconsolidated U.S. income tax returnwith D and, after eliminatingintercompany transactions between Cand D, reports consolidated totalyear-end assets on Schedule L of 8million. B is required to fileSchedule M-3 because its totalyear-end assets reported on Schedule Lexceed 50 million. The CD U.S.consolidated tax group is not required tofile Schedule M-3 because its totalyear-end assets do not exceed 10million.All detailed statements for Part II andPart III of Schedule M-3 must beattached for each separate entityincluded in the consolidated Part II andPart III, including those for the parentcompany and the eliminations entity, ifapplicable. It is not required that theExample 2. At the end ofCorporation A's current tax year, A'stotal assets were less than 10 million.A is not required to file Schedule M-3 forany reason. A may elect to fileSchedule M-3 instead of completingSchedule M-1 of Form 1120. If A electsForm 1120 and Form 1120-C filersthat (a) are required to fileSchedule M-3 (Form 1120) and haveless than 50 million total assets at theend of the tax year, or (b) are notrequired to file Schedule M-3 (Form1120) and voluntarily file Schedule M-3(Form 1120), must either (i) completeSchedule M-3 (Form 1120) entirely, or(ii) complete Schedule M-3 (Form 1120)through Part I, and completeSchedule M-1 of Form 1120 (or Form1120-C, if applicable) instead ofcompleting Parts II and III ofSchedule M-3 (Form 1120). If the filerchooses to complete Schedule M-1instead of completing Parts II and III ofSchedule M-3, line 1 of the applicableSchedule M-1 must equal line 11 of PartI of Schedule M-3.Note. In the case of an 1120 mixedgroup, Parts II and III of Schedule M-3(Form 1120) must be completed for allmembers of the mixed group whetherSchedule M-3 (Form 1120) is requiredor voluntarily filed.-2-Instructions for Schedule M-3 (Form 1120)

to file Schedule M-3, A must either (i)complete Schedule M-3 entirely, or (ii)complete Schedule M-3 through Part Iand complete Schedule M-1 instead ofcompleting Parts II and III ofSchedule M-3. If A elects to completeSchedule M-3 entirely, A must completeall columns of Parts II and III.Certain Allocations,Limitations, and CarryoversIf an item attributable to an includiblecorporation is not shared by or allocatedto the appropriate member of the groupbut is retained in the parentcorporation's financial statements (orbooks and records, if applicable), thenthe item must be reported by the parentcorporation in its separateSchedule M-3. For example, if theparent of a U.S. consolidated tax groupprepares financial statements thatinclude all members of the U.S.consolidated tax group and the parentdoes not allocate the group's income taxexpense as reflected in the financialstatements among the members of thegroup but retains it in the parentcorporation, the parent corporation mustreport on its separate Schedule M-3 theU.S. consolidated tax group's incometax expense as reflected in the financialstatements.Any adjustments made at theconsolidated group level that are notattributable to any specific member ofthe U.S. consolidated tax group (forexample, disallowance of net capitallosses, contribution deductioncarryovers, and limitation of contributiondeductions) must not be reported on theseparate consolidating parent orsubsidiary Schedules M-3 but rather onthe consolidated Schedule M-3 and onthe consolidating Schedule M-3 forconsolidation eliminations (or on Form8916 in the case of a mixed group).If an includible corporation has (1) noactivity for the tax year (for example,because the corporation is dormant orinactive); (2) no amount for thecorporation to include in Part I, line 11;and (3) no amounts to report on Part IIand Part III of Schedule M-3 for the taxyear, the parent corporation of the U.S.consolidated tax group may attach tothe consolidated Schedule M-3 astatement that provides the name andemployer identification number (EIN) ofthe includible corporation in lieu of filinga blank Part II and Part III ofSchedule M-3 for the entity. On Part I,check box (4) Dormant subsidiariesschedule attached.Other Form 1120Schedules Affected bySchedule M-3RequirementsSchedule BGenerally, a corporation or group ofcorporations that files a Form 1120 andis required to file Schedule M-3, mustalso file Schedule B (Form 1120),Additional Information for Schedule M-3Filers. In the case of a consolidatedgroup, a parent corporation files oneSchedule B (Form 1120) for the entireconsolidated group.Certain corporations or groups ofcorporations filing Form 1120 that (a)are required to file Schedule M-3 andhave less than 50 million in total assetsat the end of the tax year, or (b) are notrequired to file Schedule M-3 andvoluntarily file Schedule M-3, are notrequired to file Schedule B (Form 1120).See the Instructions for Schedule B(Form 1120).Schedule LIf a non-tax-basis income statement andrelated non-tax-basis balance sheet isprepared for any purpose for a periodending with or within the tax year,Schedule L must be prepared showingnon-tax-basis amounts. See theinstructions for Part I, line 1, for thediscussion of non-tax-basis incomestatements and related non-tax-basisbalance sheets prepared for anypurpose and the impact on the selectionof the income statement used forSchedule M-3 and the relatednon-tax-basis balance sheet amountsthat must be used for Schedule L.Total assets shown on Schedule L,line 15, column (d) (or, for someconsolidated mixed groups with a Form1120 parent and an insurancesubsidiary, the assets reported on Form1120, page 1, Item D), must equal thetotal assets of the corporation (or, for aU.S. consolidated tax group, the totalassets of all members of the grouplisted on Form 851) as of the last day ofthe tax year, and must be the same totalassets reported by the corporation (orby each member of the U.S.consolidated tax group) in thenon-tax-basis financial statements, ifany, used for Schedule M-3. If thecorporation prepares non-tax-basisfinancial statements, Schedule L mustequal the sum of the financial statementtotal assets for each corporation listedon Form 851 and included in theconsolidated U.S. income tax return(includible corporation) net ofInstructions for Schedule M-3 (Form 1120)-3-eliminations for intercompanytransactions between includiblecorporations. If the corporation does notprepare non-tax-basis financialstatements, Schedule L must be basedon the corporation's books and records.The Schedule L balance sheet canshow tax-basis balance sheet amountsif the corporation is allowed to usebooks and records for Schedule M-3and the corporation's books and recordsreflect only tax-basis amounts.Generally, total assets at thebeginning of the year (Schedule L,line 15, column (b)) must equal totalassets at the close of the prior year(Schedule L, line 15, column (d)). Foreach Schedule L balance sheet itemreported for which there is a differencebetween the current opening balancesheet amount and the prior closingbalance sheet amount, attach astatement that reports the balance sheetitem, the prior closing amount, thecurrent opening amount, and a shortexplanation of the change. Reasons forthese differences include mergers andacquisitions.For purposes of measuring totalassets at the end of the year, thecorporation's assets may not be nettedor reduced by the corporation'sliabilities. In addition, total assets maynot be reported as a negative amount. IfSchedule L is prepared on anon-tax-basis method, an investment ina partnership may be shown asappropriate under the corporation'snon-tax-basis method of accounting,including, if required by thecorporation's reporting methodology,the equity method of accounting forinvestments. If Schedule L is preparedon a tax-basis, an investment by thecorporation in a partnership must beshown as an asset and measured by thecorporation's adjusted basis in itspartnership interest. Any liabilitiescontributing to such adjusted basis mustbe shown on Schedule L as corporateliabilities.Schedule M-2The amount shown on Schedule M-2,line 2, Net income (loss) per books,must equal the amount shown onSchedule M-3, Part I, line 11.Schedule M-2 must reflect activity onlyof corporations included in theconsolidated U.S. income tax return.Consolidated Return(Form 1120, Page 1)Report on Form 1120, page 1, eachitem of income, gain, loss, expense, ordeduction net of elimination entries for

intercompany transactions betweenincludible corporations. The corporationmust not report as dividends on Form1120, Schedule C, any amountsreceived from an includible corporation.In general, dividends received from anincludible corporation must beeliminated in consolidation rather thanoffset by the dividends-receiveddeduction.Entity Considerations forSchedule M-3For purposes of Schedule M-3,references to the classification of anentity (for example, as a corporation, apartnership, or a trust) are references tothe treatment of the entity for U.S.income tax purposes. An entity thatgenerally is disregarded as separatefrom its owner for U.S. income taxpurposes (disregarded entity) must notbe separately reported on Schedule M-3except, if required, on Part I, line 7a or7b. On Schedule M-3, Parts II and III,any item of income, gain, loss,deduction, or credit of a disregardedentity must be reported as an item of itsowner. In particular, the income or lossof a disregarded entity must not bereported on Part II, line 9, 10, or 11, asfrom a separate partnership or otherpass-through entity. The financialstatement income or loss of adisregarded entity is included on Part I,line 7a or 7b, only if its financialstatement income or loss is included onPart I, line 11, but not on Part I, line 4a.Reportable Entity PartnerReporting ResponsibilitiesA reportable entity partner with respectto a partnership filing Form 1065 is anentity that: Owns or is deemed to own, directly orindirectly, under these instructions a50% or greater interest in the income,loss, or capital of the partnership on anyday of the tax year; and Was required to file Schedule M-3with its most recently filed U.S. incometax return or return of income filed priorto that day.For the purposes of theseinstructions, the following rules apply.1. The parent corporation of aconsolidated tax group is deemed toown all corporate and partnershipinterests owned or deemed to be ownedunder these instructions by any memberof the tax consolidated group.2. The owner of a disregarded entityis deemed to own all corporate andpartnership interests owned or deemedto be owned under these instructions bythe disregarded entity.3. The owner of 50% or more of acorporation by vote on any day of thecorporation’s tax year is deemed to ownall corporate and partnership interestsowned or deemed to be owned underthese instructions by the corporationduring its tax year.4. The owner of 50% or more ofpartnership income, loss, or capital onany day of the partnership tax year isdeemed to own all corporate andpartnership interests owned or deemedto be owned under these instructions bythe partnership during the partnershiptax year.5. The beneficial owner of 50% ormore of the beneficial interest of a trustor nominee arrangement on any day ofthe trust or nominee arrangement taxyear is deemed to own all corporate andpartnership interests owned or deemedto be owned under these instructions bythe trust or nominee arrangement.A reportable entity partner withrespect to a partnership (as definedabove) must report the following to thepartnership within 30 days of firstbecoming a reportable entity partnerand, after first reporting to thepartnership under these instructions,thereafter within 30 days of the date ofany change in the interest it owns or isdeemed to own, directly or indirectly,under these instructions, in thepartnership.1. Name.2. Mailing address.3. Taxpayer identification number(TIN) or (EIN), if applicable.4. Entity or organization type.5. State or country in which it isorganized.6. Date on which it first became areportable entity partner.7. Date with respect to which it isreporting a change in its ownershipinterest in the partnership, if applicable.8. The interest in the partnership itowns or is deemed to own in thepartnership, directly or indirectly (asdefined under these instructions) as ofthe date with respect to which it isreporting.9. Any change in that interest as ofthe date with respect to which it isreporting.The reportable entity partner mustretain copies of required reports itmakes to partnerships under theseinstructions. Each partnership must-4-retain copies of the required reports itreceives under these instructions fromreportable entity partners.Example 3.1. A, an LLC filing a Form 1065 for2019, is owned 50% by U.S. corporationZ. A owns 50% of B, C, D, and E, whichare also LLCs filing a Form 1065 forcalendar year 2019. Z was first requiredto file Schedule M-3 (Form 1120) for itscorporate tax year ending December31, 2018, and filed its Form 1120 withSchedule M-3 for 2018 on October 15,2019. As of October 16, 2019, Z was areportable entity partner with respect toA and, through A, with respect to B, C,D, and E. On November 5, 2019, Zreports to A, B, C, D, and E, as it isrequired to do within 30 days of October16, that Z is a reportable entity partnerdirectly owning (with respect to A) ordeemed to own indirectly (with respectto B, C, D, and E) a 50% interest.Therefore, because Z was a reportableentity partner for 2019, each of A, B, C,D, and E is required to file Schedule M-3(Form 1065) for 2019, regardless ofwhether they would otherwise berequired to file Schedule M-3 for thatyear.2. P, a U.S. corporation, is theparent of a financial consolidation groupwith 50 domestic subsidiaries DS1through DS50 and 50 foreignsubsidiaries FS1 through FS50, all100% owned on October 16, 2019. OnOctober 15, 2019, P filed a consolidatedtax return on Form 1120 and wasrequired to file Schedule M-3 for the taxyear ending December 31, 2018. OnOctober 16, 2019, DS1, DS2, DS3, FS1,and FS2 each acquires a 10%partnership interest in partnership K,which files Form 1065 for the tax yearending December 31, 2019. P isdeemed to own, directly or indirectly(under these instructions) all corporateand partnership interests of DS1, DS2,and DS3 as the parent of the taxconsolidation group and therefore isdeemed to own 30% of K on October16, 2019. P is deemed to own, directlyor indirectly (under these instructions)all corporate and partnership interestsof FS1 and FS2 as the owner of 50% ormore of each corporation by vote andtherefore is deemed to own 20% of K onSeptember 16, 2019. P is thereforedeemed to own 50% of K on October16, 2019. Since P owns or is deemed toown, directly or indirectly (under theseinstructions) 50% or more of K onOctober 16, 2019, and was required tofile Schedule M-3 on its most recentlyfiled U.S. income tax return filed prior toInstructions for Schedule M-3 (Form 1120)

that date, P is a reportable entity partnerof K as of October 16, 2019. OnNovember 5, 2019, P reports to K, as itis required to do, that P is a reportableentity partner as of October 16, 2019,deemed to own (under theseinstructions) a 50% interest in K. K istherefore required to file Schedule M-3when it files its Form 1065 for its taxyear ending December 31, 2019.ConsolidatedSchedule M-3 VersusConsolidating SchedulesM-3 for Form 1120 GroupsA consolidated tax return group with aparent corporation that files a Form1120 is a mixed group if any member isa life insurance company (files usingForm 1120-L) or a property and casualtyinsurance company (files using Form1120-PC). See Schedule M-3Consolidation for Mixed Groups(1120/L/PC) below.A U.S. consolidated tax group mustfile a consolidated Schedule M-3. PartsI, II, and III of the consolidatedSchedule M-3 must reflect the activity ofthe entire U.S. consolidated tax group.The parent corporation must alsocomplete Parts II and III of a separateSchedule M-3 to reflect the parent's ownactivity. In addition, Parts II and III of aseparate Schedule M-3 must becompleted by each includiblecorporation to reflect the activity of thatincludible corporation. Lastly, itgenerally will be necessary to completeParts II and III of a separateSchedule M-3 for consolidationeliminations.If a U.S. consolidated tax group thatis not a mixed group consists of fourincludible corporations (the parent andthree subsidiaries) all filing Form 1120,the U.S. consolidated tax group mustcomplete six Schedules M-3 as follows. One consolidated Schedule M-3 withParts I, II, and III completed to reflect theactivity of the entire U.S. consolidatedtax group. Parts II and III of a separateSchedule M-3 for each of the fourincludible corporations to reflect theactivity of each includible corporation. Parts II and III of a separateSchedule M-3 to eliminateintercompany transactions betweenincludible corporations and to includelimitations on deductions (charitablecontribution limitations and capital losslimitations) and carryover amounts(charitable contribution carryovers andcapital loss carryovers).See Completing Schedule M-3 andCertain Allocations, Limitations, andCarryovers, earlier.Note. Complete only oneSchedule M-3, Part I, for eachconsolidated group. A subsidiary of aconsolidated group does not completeSchedule M-3, Part I. Enter onSchedule M-3, Part I, the name and EINof the common parent of theconsolidated group. Indicate onSchedule M-3, Parts II and III, on theline after the common parent's nameand EIN, whether the Schedule M-3,Parts II and III, is for the (1) consolidatedgroup, (2) parent corporation, (3)consolidation eliminations, or (4)subsidiary corporation, by checking theappropriate box. If Schedule M-3, PartsII and III, are for a subsidiary in aconsolidated return, also enter the nameand EIN of the subsidiary.Schedule M-3 Consolidation forMixed Groups (1120/L/PC)Special Schedule M-3 consolidationrules apply to a mixed group, that is, aconsolidated tax group that includes (a)both a corporation that is an insurancecompany and a corporation that is notan insurance company; or (b) both a lifeinsurance company and a property andcasualty insurance company; or (c) a lifeinsurance company, a property andcasualty insurance company, and acorporation that is not an insurancecompany.Mixed group consolidation forSchedule M-3, Parts II and III, requires(a) subgroup sub-consolidation of the1120 subgroup, the 1120-PC subgroup,and the 1120-L subgroup, each with itsown sub-consolidated Schedule M-3,Parts II and III; and (b) consolidation ofthe subgroup sub-consolidation totalson a consolidated Schedule M-3, Part II,that ties to a consolidatedSchedule M-3, Part I, and aconsolidated Form 8916.In addition to one Schedule M-3, PartII, and one Schedule M-3, Part III, foreach corporation in the three subgroupsub-consolidations, there generally willbe a total of six additionalSchedule M-3, Parts II, and sixadditional Schedule M-3, Parts III, forthe subgroup sub-consolidations.Specifically, there must be one Part IIand one Part III for each subgroup'ssub-consolidated amounts and one PartII and one Part III for each subgroup'ssub-consolidation eliminations amounts.At the mixed group consolidatedlevel, there must be a consolidatedInstructions for Schedule M-3 (Form 1120)-5-Schedule M-3, Part II, and, if applicable,a Part II for consolidation eliminationsnot includible in the subgroupeliminations. At the consolidated level,there must also be a consolidatedSchedule M-3, Part I, and aconsolidated Form 8916. For a mixedgroup, there is no Schedule M-3, Part III,at the consolidated level.The corporation must check theapplicable mixed group checkboxes onall Schedules M-3, Parts I, II, and III, asdiscussed below.Subgroup Sub-Consolidation:1120 Subgroup, 1120-PCSubgroup, and 1120-L SubgroupA subgroup Schedule M-3,

Mixed Groups (1120/L/PC), later. A mixed group must also file Form 8916, Reconciliation of Schedule M-3 Taxable Income with Tax Return Taxable Income for Mixed Groups, and, if applicable, Form 8916-A, Supplemental Attachment to Schedule M-3. If the parent company of a U.S. consolidated tax group files Form 1120 and any member of the group files .